Post-Covid 19: What’s changed?
The question now lies in whether the local financial banking scene will step up to the challenge of this increasing demand for digital banking.
“In a previous life, Malaysia’s banking sector has made massive strides towards digital transformation which in fact, partly allows for a small sense of normalcy during these times.
“However, there is still more that needs to be done which may not have been fiscally viable before; partly prompting Bank Negara to announce a digital banking framework even though the permissions given in the framework could have been served by existing financial institutions,” commented Khairul Nisa Ismail, CEO of Sedania As Salam Capital
“While the framework is still in its seeking public feedback phase, the launch of similar measures in contemporary Asian nations has allowed banks to shed its legacy systems and procedures to start a new entity from scratch – one that is able to pave a new way forward for the bank without being tied to the past.
“Members of the fintech community have joked that Covid-19 is the biggest digital disruptor today. Honestly there is a lot of truth in their jabs. More traditional players would be wise to heed the recent upheaval as a push to truly innovate.
“Mindful of tightening purse strings however, what needs to radically change in Malaysia’s digital transformation climate is our approach.
“The usual product- focused approach thus far necessitates aggressive marketing, perhaps unwelcome in a more sober social climate. So break the wheel.
“This time, ask yourself: what would Malaysians need right now? How could we answer the needs of SMEs, 69 per cent of them having lost half their income since the MCO order?
“During this MCO and inevitable social distancing period afterwards, how will the average Malaysian interact with your organisation, and how could you help them during the process?
“Be it via analyt ics, artificial intelligence, or triedandtrue surveys, listening to your consumers is crucial right now because a problemfocused approach will help your organisation streamline what resources you have into the correct digital transformation projects.
“Your spending can become more streamlined without sacri f icing that zeal for innovation, and allows for better market adaptability.”
Focus on economic recovery
According to KPMG’s latest report entitled Digital Banking: The Inclusive Agenda, in a postCovid- 19 world, the financial services sector will be a key driver of economic recovery and growth. In particular, the stage is set for digital banking to thrive.
Adrian Lee, head of financial services at KPMG Malaysia, observed how the changing socioeconomic landscape has altered customers’ money management and spending patterns as well as the way businesses are run. For both individuals and businesses, mode of payments and channels of financial management will also change.
“Recent customer behaviours in both retail and commercial sectors during the pandemic have evolved in support of digital banking services.
“As customers and businesses seek alternatives to safely run operations, the potential is great for digital banking to be the next success story for the financial services sector in Malaysia.
“Digital banking presents a value proposition poised to help companies and individuals get back into the economic saddle, and financial services providers that design its products around customer needs will stand out the most.”
Adrian continued, “It is widely anticipated that BNM will see a large number of applicants for the five digital bank licenses in Malaysia due to the lower entry requirements in minimum capital and significant market opportunities locally and in the region.
“Given the emphasis BNM has placed on financial inclusion, the successful applicants will be the ones that demonstrate how their products and services will help the underserved and unserved segments rebuild themselves financially.”
KPMG in Malaysia conducted an online survey to understand customer appetite and concerns when it comes to digital banking.
The study revealed that 77 per cent of the 1,220 respondents in Malaysia believe digital banking is the next evolution in financial services, and 82 per cent are already using internet banking functions of their banking service providers.
According to Yeoh Xin Yi, KPMG’s financial services advisory partner and head of financial risk management, 82 per cent indicated they would consider opening a bank account through online platforms only if they were regulated by Bank
Negara Malaysia.
On preferred features of digital banks, respondents appear to look forward to products and services that add value to their lifestyle (see chart below).
“Malaysian consumers are clearly ready and willing to embrace digital banking. It is up to the players to make the crucial step in establishing a customerfirst model for digital banking.
“Banks need to incorporate advanced analytics into understanding customer preferences and behaviour, from a historical as well as a forward-looking point of view. Information and data are key to providing customers with better products and services, thereby translating to economic value for the digital bank,” added Yeoh.
Improving financial literacy and inclusion
Despite there being more than 1,823 bank branches in Malaysia as of December 2019 and more than 37 banking institutions covering commercial banks, Islamic banks, and development financial institutions1, there is still a lack of coverage for the unserved and underserved segments of the B40 and M40 groups.
Yeoh commented, “Customers that fall into the unserved or underserved segments are more likely than others to have a profile that fall short of the conventional bank’s credit criteria when financing is sought.
“Digital banks can view this as an opportunity to expand its reach into untapped markets while also delivering on BNM’s aspirations for financial literacy and inclusion. Ideally, we would seek to have customers achieve higher financial literacy through the provider’s ability to advise, recommend and encourage positive financial behavior.”
Fortheunservedorunderserved in retail and non-retail segments, micro-savings or deposits, microfinancing and micro-insurance are some of the basic products that is needed.
These “bite- sized” products enable consumers to access affordable financial enabling services in manageable quantum, and introduces those who are financially unaware to products that can gradually improve their financial literacy and economic livelihood.
The unserved and underserved of the B40 groups in Malaysia should be onboarded to financial service platforms that can help in cashflow management, enabling micro-savings or deposits, microinsurance that safeguards their basic needs, and basic financing products to tide them over their financial trouble if the need arises.
The underserved M40 and T20 segment can also benefit from the convenience and value add that digital banks can offer from a lifestyle and advisory perspective, with a different set of customised targets to help achieve their financial needs.
Be an active platform Digital banks should be an active platform in the economic lifecycle of the segments it serves. It can do so by forming an eco-system or be part of an eco-system that is relevant to their users, where the user will be immediately plugged into a host of services within the digital bank platform.
Yeoh explained, “For a micro enterprise, for example, the platform would enable receiving payments digitally, purchasing materials via a marketplace, micro-savings and micro deposit auto functions, analytics for its business and personal finance, and basic micro- financing that commensurate with their financial behaviour and capacity as a micro-enterprise.”
In conclusion, by leveraging on advanced technology, digital banks can fill the void that is within our economic environment and address the pain points of the unserved and underserved in both retail and non- retail segments.